Mississippi Lawmaker Asks Holder to Block FEMA Trailer Sales on Antitrust Grounds

House Homeland Security Committee Chairman Bennie Thompson from Mississippi asked Attorney General Eric Holder on Thursday to stop the government from selling thousands of FEMA trailers that were intended to house refugees from the 2005 Hurricanes Katrina and Rita, and argued the sale raised antitrust concerns.

Some of the units posed health risks because they were contaminated with formaldehyde, and were never distributed, Thompson said. The industry expects that it will sell 203,500 trailers this year, he said, and the government has around 103,000 to get rid of. “We find it difficult to believe that dumping over 100,000 used [units]…will not create a substantial and negative effect on the price and supply of trailers,” he said.

Justice Department spokesman Charles Miller told the Associated Press that Holder’s office would respond to Thompson’s letter.

Read the letter here, and the Associated Press story here.

Varney Defends Ticketmaster Decision at SXSW

Executives from the now-combined ticketing and concert promotion behemoth Live Nation Entertainment didn’t show up at a popular music and tech festival in Austin this week.  But Assistant Attorney General for Antitrust Christine Varney was on hand yesterday at the South by Southwest conference, known as SXSW, to defend her decision to let the deal go through — with conditions.

Varney was “on the defensive” with a “contentious” audience skeptical of the merger, the L.A. Times said. “I know it’s not a satisfying answer,” she said, according to the paper’s music blog. “We are constrained by the law. The overlap that we found was in ticketing. That’s why the remedy rests in ticketing.”

The paper also reported that Varney urged the audience to tell the Justice Department if the behavioral remedies were working. “We’re talking to bands, managers, promoters, a lot of people, understanding how our proposed consent decree is working, not working,” Varney said. “But the only way we know if it’s working is to hear from you.”

Read that story here.

‘Kabletown’ Swallows NBC

The NBC sitcom 30 Rock continued its spoof on Comcast Corp.’s bid to takeover NBC Universal on Thursday, with a fictional Philadelphia-based company called “Kabletown” as a stand-in for Comcast. Last week’s episode debuted the cable giant as a “fine and generous company.” This Thursday night’s episode wasn’t quite as charitable. Kabletown, it turned out, gets 91 percent of its profits from pay-per-view pornography and was buying NBC as a tax write-off.

Watch the episode here.

In a brief break between the blizzards that have paralyzed Washington, D.C.,  Main Justice sat down with former Assistant Attorney General Thomas O. Barnett in his office at the Washington, D.C., law firm of Covington & Burling.

Former Antitrust Division chief Tom Barnett at a 2005 news conference. (Getty Images)

Barnett, who led the Antitrust Division from 2005 until 2008, spoke about his tenure at the Justice Department, the Federal Trade Commission’s case against chip maker Intel Corp., and how he believes his successor’s bark may be worse than her bite.

The following is an edited transcript of the interview:

Your successor on the job, Christine Varney, has been at the Antitrust Division for less than one year. Her early speeches criticized your approach and signaled the DOJ would take a tougher line on antitrust enforcement. The Ticketmaster-Live Nation merger, which the Division approved with conditions last month, was closely watched as an early test of the new administration. How would you rate its performance?

I would distinguish between the rhetoric at the division and their actual enforcement and policy actions. They certainly came in with very strong rhetoric suggesting they would be dramatically more aggressive in enforcement actions.

But you look at the specific example of Ticketmaster-Live Nation. What the agency did do was challenge a horizontal overlap that under the market definition that they alleged, indicated that the combination would have led to a very high degree of concentration. They alleged barriers to entry, and then they obtained relief for that. That’s the sort of theory that is perfectly consistent with the enforcement actions that were taken during the previous eight to nine years.

They also adopted some behavioral remedies in the Ticketmaster settlement that affect vertical relationships.

An interesting policy question is, if you look at the merger remedy manual that the Antitrust Division puts out, it very much disfavors behavioral remedies. It indicates that the policy of the division is to seek structural remedies wherever possible.

Because a behavioral remedy is hard to enforce?

It’s hard to monitor, it’s hard to enforce, it can draw the Division and the court into regulating day-to-day operations, and there are some question that I’ve seen raised in the press about what some of the terms mean: you can bundle, but you can’t exclude, and could bundling be exclusion? Those are hard questions, and I don’t think they are answered on the face of the papers.

As head of the Antitrust Division, you issued a controversial report on bundling and other conduct that could raise antitrust concerns under Section 2 of the Sherman Act. The Federal Trade Commission, which shares the responsibility of enforcing federal antitrust laws, did not sign on.

You can think about the report in two aspects. One is the synthesize of, this is what the courts have said, this is what academics have said, this is what people on both sides of the issue have said. The second aspect is, where should we go from here? The prescriptive aspect of it. On the descriptive aspect of it, I really thought that the staffs had done a phenomenal job of collecting all of that information together. At a basic level, I wanted the public to have the benefit of that work.

And on the second, prescriptive, issue?

I viewed it as an important part of our responsibility as public servants to try to move the law forward. And businesses should have as clear guidance as possible about where the line is. If they know where the line is, they are more likely to stay on the right side of it and comply with the law. If the line is clear and they cross it, it’s going to be easier to bring a challenge and challenge the conduct. It did become clear at some point that the FTC was not going to join in either aspect of the report. And my view, I believe very much in a marketplace of ideas. You put it out there, and you let it rise or fall on the crucible of competition, and you allow people to debate it.

But wouldn’t that result in more confusion for businesses?

It revealed that there were some differences of views between at least the Antitrust Division in 2008 and the FTC. The mere fact that that difference became public, is a valuable thing for businesses to know, because it’s not like that difference wasn’t there. It just became public. And transparency is generally a good thing.

One of Christine Varney’s first actions as head of the Antitrust Division was to withdraw the report.

Christine Varney (photo by Main Justice)

If the current Assistant Attorney General does not agree with the report, particularly the prescriptive aspects of the report, then as a matter of transparency, the right thing to do is to make that public, which she did in withdrawing the report. So I would agree with her decision to do it. Now what the FTC did not do at the time, and what the DOJ has not done since it has withdrawn the report, is they’ve not come forward and said, here is our alternative.

I would go further and say I was disappointed that the report was withdrawn in its entirety. I’ve drawn this distinction between the prescriptive side and the descriptive side. I mean that is still out there, and people can still reference it. But one could have at least considered in being more selective about what was withdrawn. I really do think the staff did a tremendous job in pulling all that together.

Now that you are back in private practice, do you care which agency is reviewing a deal you are working on?

Historically it has been the case that the outcome at either agency is likely to be the same. But there is now at least the possibility, based on what has happened with Whole Foods, that the standard for the FTC is significantly lower than it is for the DOJ. The amount of time between when the investigation starts and when you get to an Article III [ie: federal] court is far longer at the FTC than it is at the DOJ. As a matter of policy, it is not clear to me that the standard for seeking a preliminary injunction should be different between the two agencies, because then you end up with a situation where the burden on the parties is significantly different based on the clearance issue.

The FTC recently filed suit against Intel using its authority under Section 5 of the Federal Trade Commission Act, which has not been tested by the courts in recent years.

I’m not in a position to comment on the merits of the Intel case.  As a separate policy matter, I’m very concerned about the expansion of stand-alone Section 5 enforcement because of the inability to set forth clear criteria for where the line is. If the standard is perceived by the courts as being so amorphous that it is effectively an ex-post judgment that was not reasonably foreseeable by the parties at the time they were making their decisions, I think it could be unfair to the parties and harmful to consumers, and I think the courts may react negatively to this approach.

The agencies are now considering revising the guidelines they use to evaluate horizontal mergers. Do you think they should be changed?

The basic framework of the guidelines, and the basic focus on market definition, and competitive effects, entry and efficiencies, is the right framework, I think. There have been discussion about whether the agencies might try to interject some new concepts into the guidelines, but to me it would be a mistake. I think it is a healthy discipline if you are forced to put the theory of the challenge to the merger into the framework of a relevant market, and then explaining within that framework why the merger of these two particular companies would be anti-competitive.

But some observers have said the Justice Department lost its 2004 case to block Oracle’s hostile bid for PeopleSoft, in part because of the merger guidelines’ market definition requirements.

At the end of the day, while the division presented evidence to support its proposed definition of the relevant market, the judge decided that the evidence weighed more in favor of a broader market. If the judge had accepted more of the narrower market, then the analysis of competitive effects and the theory of harm that the division was presenting would have been far more likely to be persuasive to the judge.

Once the judge had decided that the evidence didn’t support the narrow market, then the case basically fell apart. That’s not a matter of following the guidelines or not following the guidelines.

In retrospect, is there anything you would have done differently at the Justice Department?

No. That’s not to say that everything I did was perfect, but what I tried to do is to work hard on each individual matter to understand the facts, to understand the evidence, to understand the law, and to make the right decision. And I feel comfortable that that’s what we did in every case. In that respect, I don’t have any regrets.

You were at Covington & Burling before joining the Justice Department, and you went back there after leaving government. Did you move back into your old office?

No, different office, my old office was occupied. But it is a better view. I can see the Department of Justice from my window!

After a year-long review closely watched for signs of the direction the Obama administration’s antitrust regulators will take, the Justice Department today signed off on the merger between ticket giant Ticketmaster and concert promoter Live Nation. But DOJ insisted on a number of changes in the deal.

In order to win regulatory approval, the combined firm agreed to a list of DOJ’s changes to the deal: Ticketmaster will license its ticketing software and divest some ticketing assets, and refrain from bundling tickets with other services in an anticompetitive way, retaliating against venues that choose other ticketing services, or using consumer data in to gain an unfair advantage in its promotion business, according to documents filed today in federal court in Washington, D.C.

“We were prepared to litigate the case, and I told the parties that,” Attorney General for Antitrust Christine Varney told reporters in a briefing to announce the settlement. “The linked structural and behavioral remedies in this settlement preserve and protect competition, while allowing the parties to achieve any consumer benefits that are associated with the merger.”

The Justice Department, along with 17 state attorneys general, filed both a lawsuit and a proposed settlement that attempts to bring two new firms into the ticketing market to compete with Ticketmaster’s primary business.  Under the proposed settlement,  Ticketmaster will license ticket software to rival concert promoter AEG, and divest a ticketing company to Comcast-Spectator or another DOJ-approved buyer.

The settlement also subjects the combined firm to 10 years of heightened scrutiny of its attempts to sell bundled services, and Varney vowed to follow through on that requirement.

“I will decide what an anti-competitive bundle is,” Varney said in the briefing.

But the long list of remedies doesn’t necessarily represent a major change in antitrust enforcement under the Obama administration, since many observers had expected the Justice Department to block the merger outright.

The companies were interested in the merger for the vertical integration it would provide, and critics of the deal had also focused on the so-called vertical concerns the merger raised, or the kinds of access the deal might close off for rival promoters or ticketing outlets.

“Parties who preserve the basic core of a controversial acquisition are usually relieved — and I’d guess these two are,” said Wayne State University Law School professor Stephen Calkins, in an e-mail to Main Justice.

The remedies in the proposed settlement focus on the horizontal issues of the deal and how to create competing ticketing firms.  Neither Comcast nor AEG is currently a major player in the ticketing market, and no substantial competitor to Ticketmaster has emerged in several years.

“It is less than perfect, and you have got to be a little bit uncomfortable” with companies that don’t already have a presence in the market, said Marc Schildkraut, a partner at the Washington, D.C., Howrey law firm, who worked at the Federal Trade Commission’s competition bureau. ”But they are pretty substantial companies, and DOJ probably tried pretty hard to vet these people [to ensure] that they were going to be serious competitors.”

Ticketmaster’s antitrust counsel, Gibson, Dunn & Crutcher partner Steven Sletten, said the Justice Department focused on the horizontal issues because the vertical case was a tough one to make. ”It is quite rare to find legitimate antitrust concerns in vertical mergers,” Sletten said, in a statement. “We felt that the DOJ’s case against the merger was not particularly strong on existing antitrust law.”

Both parties said they had been prepared to go to court. ” DOJ and the parties spent a lot of time negotiating a resolution … that meets the DOJ’s concerns and allows the merger to proceed without the need for lengthy litigation,” Sletten said, “and the business guys at Ticketmaster and Live Nation can get on with integrating the two companies for the benefit of consumers, artists, sports teams, venues, and pretty much everyone in the chain of live entertainment.”

Irving Azoff, CEO of Ticketmaster, said, “We appreciate the Department of Justice’s effort. Their resolution is a great win for fans.”

Michael Rapino, CEO of Live Nation said: “the Department of Justice was thorough and aggressive in their analysis and their remedies, and we are confident that with this resolution the playing field is competitive and broader as a result of this transaction.”

The deal’s critics said they remained concerned about the proposed remedies. ”While we appreciate the efforts of the DOJ to extract meaningful concessions from the parties, we remain concerned that these two companies, with a history of anti-consumer behavior, will abide only by the letter, and not the spirit of the settlement agreement,” said Sally Greenberg, executive director of the National Consumers League, a watchdog group that has been opposed to the deal.

“It is therefore critically important that the DOJ hold the merger company’s feet to the fire to ensure that the settlement will have its intended effect,” she said in a statement.

The following documents were filed in U.S. District Court for the District of Columbia in connection with the proposed antitrust settlement between the U.S. and state attorneys general and Ticketmaster Entertainment Inc. and Live Nation, Inc.

Complaint

Competitive Impact Statement

Exhibit A – Letter of Agreement

Exhibit A – Proposed Final Judgment

Exhibit B – U.S.’s Explanation of Consent Decree Procedures

Exhibit C – Hold Stipulation and Order

FOR IMMEDIATE RELEASE

MONDAY, JANUARY 25, 2010

WWW.JUSTICE.GOV

JUSTICE DEPARTMENT REQUIRES TICKETMASTER ENTERTAINMENT INC. TO MAKE SIGNIFICANT CHANGES TO ITS MERGER WITH LIVE NATION INC.

Software Licensing Agreement, Divestiture and Anti-Retaliation Provisions Will Preserve Competition in Ticketing in the United States

WASHINGTON – The Department of Justice announced today that it will require Ticketmaster Entertainment Inc. to license its ticketing software, divest ticketing assets and subject itself to anti-retaliation provisions in order to proceed with its proposed merger with Live Nation Inc.  The department said that the proposed settlement will protect competition for primary ticketing, which will in turn maintain incentives for innovation and discounting. The department said that the merger, as originally proposed, would have substantially lessened competition for primary ticketing in the United States, resulting in higher prices and less innovation for consumers.

The Department of Justice’s Antitrust Division, along with 17 state attorneys general, filed a civil antitrust lawsuit today in the U.S. District Court in Washington, D.C., to block the proposed transaction.  At the same time, the department and the states’ Attorneys General filed a proposed settlement that, if approved by the court, would resolve the competitive concerns in the lawsuit.   The state attorneys general offices are: Arizona; Arkansas; California; Florida; Illinois; Iowa; Louisiana; Massachusetts; Nebraska; Nevada; Ohio; Oregon; Pennsylvania; Rhode Island; Tennessee; Texas; and Wisconsin.

The Department of Justice cooperated closely with the Canadian Competition Bureau throughout the course of its investigation, and the two agencies worked together to obtain the same remedy that preserves competition in both the United States and Canada.

Under the proposed settlement, Ticketmaster must license ticket software and divest ticketing assets to two different companies—Anschutz Entertainment Group (AEG) and either Comcast-Spectacor or another buyer suitable to the department, respectively—allowing both companies to compete head-to-head with Ticketmaster.  Ticketmaster will also subject itself to court-ordered restrictions on its behavior.

“The Department of Justice’s proposed remedy promotes robust competition for primary ticketing services and preserves incentives for competitors to innovate and discount, which will benefit consumers,� said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “The proposed settlement allows for strong competitors to Ticketmaster, allowing concert venues to have more and better choices for their ticketing needs, and provides for anti-retaliation provisions, which will keep the merged company in check.�

As part of the proposed settlement, Ticketmaster must license a copy of its primary ticketing software to AEG, the nation’s second-largest concert promoter and operator of some of the most important concert venues in the country.  With a copy of the Ticketmaster software, AEG will be able to market a ticketing system that is an attractive choice to venues.  AEG will have incentives similar to Live Nation to provide better services at lower prices.  Within five years, AEG can purchase the Ticketmaster ticketing software, decide to create its own software, or partner with a  ticketing company other than Ticketmaster.  The department said that this remedy enhances short and long term competition in the primary ticketing market.

Ticketmaster must divest Paciolan Inc., a ticketing company that it currently owns, within 60 days to either Comcast-Spectacor, which has already signed a letter of intent to purchase the assets, or some other buyer suitable to the department.  Comcast-Spectacor is a sports and entertainment company with management relationships with a number of concert venues and ticketing experience with its New Era Tickets company.  Paciolan is used by hundreds of venues to sell tickets including major concert venues around the country.  Venues that contract with Paciolan have greater flexibility to lower the ticket service fees that are charged to consumers who buy tickets.  The department said that divesting Paciolan to Comcast-Spectacor, or another suitable buyer, in conjunction with the AEG license, will replace the competitive pressure on Ticketmaster lost as a result of the merger.

Under the settlement, the merged firm will be forbidden from retaliating against any venue owner that chooses to use another company’s ticketing services or another company’s promotional services, including restrictions on anticompetitive bundling.  The merged firm must also allow any client that leaves and chooses to use another primary ticketing service to take a copy of the ticketing data related to that client’s sales.  The settlement also sets up firewalls that protect confidential and valuable competitor data by preventing the merged firm from using information gleaned from its ticketing business in its day-to-day operations of its promotions or artist management business.  Additionally, the merged firm must provide notice of any other acquisitions of a ticketing company so that the department may investigate the competitive effect of such an acquisition.
Together, these remedies will preserve the competition that Ticketmaster faced from Live Nation, a new ticketing entrant, the department said.  Prior to its proposed merger with Ticketmaster, Live Nation had established incentives to reduce service fees to sell more tickets.  Today’s settlement offers a new competitor comparable incentives to ensure ticket sales are maximized for the benefit of consumers, the department said.

Ticketmaster is a Delaware corporation headquartered in West Hollywood, Calif.  Ticketmaster is the world’s largest ticketing company.  In 2008, Ticketmaster sold more than 141 million tickets valued at more than $8.9 billion on behalf of more than 10,000 clients worldwide and earned approximately $1.4 billion in gross revenues.

Live Nation is a Delaware corporation headquartered in Beverly Hills, Calif.  It is the world’s largest promoter of live concerts, with 2008 worldwide gross revenues of $4 billion.  Live Nation also owns or operates more than 75 concert venues of various sizes in the United States.

AEG, headquartered in Los Angeles, is one of the leading sports and entertainment presenters in the world.  AEG, a wholly owned subsidiary of the Anschutz Company, owns or controls a collection of venues, such as the Staples Center (Los Angeles), Prudential Center (Newark, N.J.), Sprint Center (Kansas City, Mo.) and Citizen’s Business Bank Arena (Ontario, Canada).  The company’s live entertainment division, AEG Live, is one of the world’s leading concert promotion and touring companies with 15 regional offices that has recently promoted national tours on behalf of artists such as Prince, Usher, Kenny Chesney, Rod Stewart, Paul McCartney, Yanni, The Eagles, George Strait, Justin Timberlake, Christina Aguilera, Dixie Chicks, Hannah Montana and American Idol.  AEG is also a 50 percent owner of Wright Entertainment Group, which manages major artists such as the Jonas Brothers, Justin Timberlake, Janet Jackson and ‘N Sync.

Comcast-Spectacor, headquartered in Philadelphia, has more than $1 billion in annual sales.  It is a joint venture between a private investor and Comcast Corp., a leading provider of cable, Internet and phone services in the United States.  Comcast-Spectacor owns a national ticketing services company, owns and operates major venues and sport franchises, manages approximately 90 public assembly facilities, and runs a major North American food and beverage concessions company.

As required by the Tunney Act, the proposed 10-year settlement, along with the department’s competitive impact statement, will be published in the Federal Register.  Any person may submit written comments concerning the proposed settlement during a 60-day comment period to John R. Read, Chief, Litigation III Section, 450 Fifth Street, N.W., Suite 4000, Washington, D.C.  20530.  At the conclusion of the 60-day comment period, the U.S. District Court for the District of Columbia may enter the proposed settlement upon finding that it is in the public interest.

The Antitrust Division found itself in the middle of a dust-up this week, when one report surfaced Tuesday evening that it was close to approving a pending merger between ticket giant Ticketmaster and concert promoter Live Nation.

But the next day, reports surfaced that shot down the story, and also went so far as to suggest settlement talks might have actually broken down and a government team was prepping for court.

While neither company nor the Justice Department will comment on the developments, and no one has confessed to the leak, the different reports got the antitrust world talking.

“It’s fascinating,” said one long-time antitrust attorney who is not working on the merger, referring to the brazenness of leaking a bad story that also moves the market. “It was a fairly strong-willed leak.”

But while the two reports seem at odds, observers caution, both could have some truth to them. One team of DOJ lawyers could be prepping for court, while another continues to work toward a potential settlement.

If the Antitrust Division has serious concerns about a deal, it usually follows one of two paths, said David Meyer, a former Antitrust Division deputy who co-heads the antitrust practice at Morrison & Foerster.

The division would either insist on a “binding timing commitment” from the parties that would give the agency time to prepare for court if negotiations broke down, Meyer said. Or it would be preparing for court while settlement discussions were going on.

“I’m aware of situations when I was there where thinking about the trial team occurred very early” in the review process, Meyer says.

When the DOJ reviewed Google’s proposed deal with Yahoo at the end of the prior administration, it brought in Hogan & Hartson’s Sandy Litvak to potentially litigate the case a few months before the parties abandoned the deal.

When the current Antitrust Division team took over, well-known litigator William Cavanaugh joined it as a deputy, signaling that the new Obama administration might be ready and willing to oppose more mergers in court.

Assistant Attorney General Christine Varney took over the Antitrust Division in April with a vow to reinvigorate enforcement. The Ticketmaster deal is being closely watched as one of the first big tests of the new administration.

The deal’s opponents say there is some precedent for Varney to take the merger to court rather than settle for what critics argue might be a weak divestiture.

The Center for American Progress’ David Balto, who has been working with a coalition opposed to the merger, points out that when Varney was a commissioner at the Federal Trade Commission during the Clinton administration, she voted to take an office supply store deal to court rather than accept a settlement the parties had negotiated.

The commission voted to litigate the proposed merger between Staples and Office Depot in 1997. It rejected a proposed settlement that would have required Staples to spin off stores in markets where the post-merger company would lack a serious competitor.

Varney “learned early in the Clinton administration” that “accepting a weak divestiture would be a mistake,” Balto said in an email to Main Justice. The court sided with the FTC, and blocked the merger.

The FTC’s decision in the Staples merger “was the right one,” Balto says, and it “revitalized” the FTC’s “role as a merger enforcer.”

A report yesterday in The Deal that said the Justice Department was close to approving the controversial merger between Ticketmaster and Live Nation is “not true”, a person familiar with the matter told Main Justice.

Reuters reported that the Antitrust Division has a litigation team that has been “preparing the case” for months, and could decide to take the deal to court.

Another person familiar with the merger speculated that the companies leaked selective information ahead of a shareholder vote on the deal scheduled for Friday.

We’ll get more to you as the story develops.

The Justice Department is set to approve Ticketmaster Entertainment Inc.’s proposed $720 million purchase of Live Nation Inc., according to a story in The Deal, a mergers & acquisition news service.

The deal between the ticket giant and the concert promoter prompted a year-long review by the Justice Department’s Antitrust Division. Staff attorneys, according to The Deal, were “unenthused” about pursuing the case.

Critics of the deal, including a coalition under the name ticketdisaster.org, urged antitrust regulators to block the merger, citing  the combined firm’s “unprecedented control” over ticket prices and access. The merger would result in higher fees for consumers, critics said.

Attorneys for Ticketmaster and Live Nation did not respond to requests for comment.